Global Markets Overview – June 24, 2014

The major development from overnight trade was news that Iraq's army enjoyed a minor victory after recapturing some territory from militants. This resulted in a sharp decline in oil prices, particularly Brent crude which is more sensitive to geopolitical issues. The drop in oil along with some encouraging US economic data in the form of flash manufacturing PMI and existing home sales helped US markets come off their lows and finish the session relatively flat. However, it was a different story in Europe where a round of disappointing manufacturing and services PMIs weighed on sentiment. This resulted in some pretty hefty falls in some of the major European bourses. However, the euro managed to remain fairly steady and in fact EUR/USD bounced back above 1.3600. This will still be a concern for the ECB as it would want to see a weaker euro.

Japan in focus this week

The economic calendar is very light in Asia today and perhaps Japan will and China will continue to dictate sentiment for the region. Perhaps the conference board's May leading economic index out of China will help shed some light on the recovery. Keeping in mind Japan has a big week of data on the way, the Nikkei might continue to see caution prevailing in the near term.

The data will climax at the end of the week when we get Japan's household spending, CPI, unemployment rate and retail sales. These readings are for May and June and will especially be significant as they show how the economy is performing post the sales tax hike. From a CPI perspective, the data is expected to show the BoJ's inflation target is being achieved at a swift pace. A key concern is that CPI has been distorted by the sales tax hike now. Real wages continue to struggle and this will be a key concern for the economy going forward, especially as energy costs are also rising. This has a negative effect on real wages.

USD/JPY hasn't done much so far today, but is holding its ground around 102. We are currently calling the Nikkei around 0.3% lower after a fairly resilient performance yesterday. Given yesterday's gains were mainly underpinned by buybacks, then this could all unravel today.

Materials key for Aussie market

Looking ahead to the local market open we are calling it flat after the performance we saw in US trade. Metals remained bid with good gains for copper, gold and zinc. This is primarily due to the recovery in China's manufacturing data. Iron ore's recovery has also remained intact with a 1.4% gain to 93.4. Materials could remain bid today after a solid performance yesterday particularly in the pure plays.

Yesterday we saw some fairly solid performances by the likes of AGO, ARI, MGX and FMG. This whole week there is likely to be a fair bit of window dressing going on and this will continue to have an impact on price action. Some investors will be looking to pick up good value underperformers so to speak, and get rid of lemons. It'll be interesting to see if energy names can hold on to gains after the pullback in oil prices. This might put them under pressure today.

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